a. Compute the expected retum for the corporate bond fund and for the common stock fund. The expected return for the corporate bond fund is. (Round to two decimal places as needed.) The expected return for the common stock fund is (Round to two decimal places as needed.) b. Compute the standard deviation for the corporate bond fund and for the common stock fund. The standard deviation for the corporate bond fund is. (Round to two decimal places as needed.) The standard deviation for the common stock fund is (Round to two decimal places as needed.)

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You plan to invest $1,000 in a corporate bond fund or in a common stock fund. The information to the right about the annual return (per $1,000) of each of these investments under
different economic conditions is available, along with the probability that each of these economic conditions will occur. Complete parts (a) through (d) below.
Economic
Probability Condition
0.01
Corporate Common
Bond Fund Stock Fund
<-300
Extreme recession
0.09
0.20
-990
-350
- 50
Recession
Stagnation
Slow growth
Moderate growth
High growth
-40
30
70
80
0.25
0.30
0.15
50
150
350
90
a. Compute the expected retum for the corporate bond fund and for the common stock fund.
The expected return for the corporate bond fund is
(Round to two decimal places as needed.)
The expected return for the common stock fund is
(Round to two decimal places as needed.)
b. Compute the standard deviation for the corporate bond fund and for the common stock fund.
The standard deviation for the corporate bond fund is.
(Round to two decimal places as needed.)
The standard deviation for the common stock fund is
(Round to two decimal places as needed.)
c. Would you invest in the corporate bond fund or the common stock fund? Explain.
V that for the corporate bond fund, the common stock fund
V fund should be chosen, Since the standard deviation for the common stock fund is
Based on the expected value, the
the risk when making a decision.
the corporate bond fund and an investor
Transcribed Image Text:You plan to invest $1,000 in a corporate bond fund or in a common stock fund. The information to the right about the annual return (per $1,000) of each of these investments under different economic conditions is available, along with the probability that each of these economic conditions will occur. Complete parts (a) through (d) below. Economic Probability Condition 0.01 Corporate Common Bond Fund Stock Fund <-300 Extreme recession 0.09 0.20 -990 -350 - 50 Recession Stagnation Slow growth Moderate growth High growth -40 30 70 80 0.25 0.30 0.15 50 150 350 90 a. Compute the expected retum for the corporate bond fund and for the common stock fund. The expected return for the corporate bond fund is (Round to two decimal places as needed.) The expected return for the common stock fund is (Round to two decimal places as needed.) b. Compute the standard deviation for the corporate bond fund and for the common stock fund. The standard deviation for the corporate bond fund is. (Round to two decimal places as needed.) The standard deviation for the common stock fund is (Round to two decimal places as needed.) c. Would you invest in the corporate bond fund or the common stock fund? Explain. V that for the corporate bond fund, the common stock fund V fund should be chosen, Since the standard deviation for the common stock fund is Based on the expected value, the the risk when making a decision. the corporate bond fund and an investor
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